All lenders must now meet disclosure requirements for adjustable rate mortgages (ARMS). Among these are: An historical example of how the requested loan would have worked during the last 15 years; how to convert that example to the buyer’s own situation, and a worst-case illustration of how the loan could perform if rates go up through the roof.
The disclosure shows the consumer how to convert the $10,000 ARM illustration to his own loan request. Thus, if he – wants to borrow- $l00,000 (in this case) it would tell him to multiply the monthly payments by 10.
To show how the loan ‘will perform under the worst possible circumstances, theexample starts at the intia1 rate and moves rapidly up to the top interest rate and payment possible. Lenders must also explain how the index is -adjusted and how future rates and payments will be determined.